In my analysis yesterday of SAP’s recent increase in maintenance fees for all of its customers, and why that pricing should actually have gone down, I might have left some of you hanging: “Well, now that you’ve told us we’re basically stuck with SAP, then why don’t you give us a solution, Mr. Bigshot Opinion.”
Fair enough. I’m going to turn to Forrester Research’s star ERP analyst Ray Wang and his recent analysis on how companies are coping with SAP’s pricey maintenance hike (from 17 percent to 22 percent) and his seven suggestions on how to deal with the unwanted costs.
Make no mistake: This is a hugely important effort for you. “Prepare to influence SAP,” Wang writes, “or face the consequence of long-term lock-in.”
1. Fight for Your Discount. Wang first advises his clients to take a long-term view on contracts. “While a small discount in the past was offset with 17 percent maintenance over a 10-year period, customers should seek greater discounts in licenses to offset the maintenance fee increase,” he writes. Forrester recommends that customers should target an equivalent or lower total 10-year cost.
Some customers, Wang adds, have deferred their next purchase decision until after Jan. 1 2009, when the new maintenance fee kicks in. “These customers hope to gain leverage in the discounting and maintenance discussion, or on other issues such as SAP Business Information Warehouse (BW) credit toward Business Objects,” Wang writes.
2. Demonstrate to SAP a Lower “Target Account Value.” A time-honored tactic in vendor negotiations has been to set what’s called spending expectations, which can reduce the pressure on both the salesperson and the customer. “Large customers should invest time convincing SAP that their ‘target account value’ is not reflective of a company’s growth rates or future SAP strategy or face a barrage of more unnecessary service offerings,” Wang writes.
3. Assess Your Current Value for Support and Maintenance. This tactic may take some time but will be worth it. Wang advises business and IT folks who work with the SAP applications to conduct an internal audit to determine the number of support interactions during the past four years, support packages deployed, bug fixes deployed, and regulatory updates deployed. Then, he writes, take the total number of interactions and divide by the total amount spent on support and maintenance.
4. Quantify Unkept Promises. “Many customers chose SAP with the understanding that functionality gaps would be provided over time via enhancements that would be paid for by maintenance and support fees,” Wang points out. “Customers should document a list of outstanding functional requirements and enhancements that have not been addressed, and work with other industry peers to drive a delivery commitment date from SAP.”
5. Create a Long-Term SAP Containment Strategy. Historically, most SAP customers adopted a single-vendor strategy out of “fear of complicated integrations, desire for process standardization and need to expedite deployments pre-Y2K,” Wang writes. “But long-term apps strategies should consider how to contain future risk in a single-sourced ERP scenario.”
This option—while a bit dicey for some companies—may include a departure from a single-sourced vendor strategy, in order to prove a customer’s seriousness to switch vendors, Wang notes. He adds that many SAP clients with whom Forrester spoke with for this report had begun evaluating Oracle Siebel, salesforce.com, and others for CRM as well as Siperian, Initiate Systems, and IBM for master data management (MDM).
6. Take Action in the SAP User Groups. Now is the time, Wang notes, for SAP customers to “leverage their independent user groups to organize a campaign against this maintenance fee increase.” Members of user groups such as Americas’ SAP Users’ Group (ASUG), the German SAP User Group (DSAG), and the SAP UK & Ireland User Group should start special interest groups to press SAP for a more palatable solution to the increase, says Wang. (See “U.K. SAP Users Angry Over SAP Support Price Increases” and “As SAP Support Costs Spike, Users’ Group Leader Preaches Collaboration — Not Rebellion” for more on those groups’ reactions to the price increase.)
“Customers should specifically ask for concessions such as a commitment to stated percentages of support dollars back to reinvestment and written guarantees that functionality replacement will be provided in future releases,” Wang adds.
7. Look into Third-Party Maintenance Options. Rimini Street’s recent announcement that it will provide third-party maintenance in 2009 for SAP’s R/3 product is worth checking out. “JD Edwards and PeopleSoft customers who have considered this option already save up to half of their Oracle maintenance fees,” Wang notes.
So those are Wang’s seven “calls to action.” (For more on SAP’s future, you can also check out “Five Things About SAP’s Strategy That You Need to Know.”)
I’ll add an eighth: You could simply tell your SAP rep that you and your company are freezing all your IT spending at this time. “Come back next year.” Which is what SAP execs recently told their employees to do.